House Financial Services Committee approves anti-ESG bills late Thursday night

Earlier this week, House Financial Services Committee Republicans introduced four anti-ESG bills. The Committee press release describes the bills as designed “to address the threats environmental, social, and governance (ESG) initiatives pose to the American financial system.” Following a mark-up session that went into the evening, the bills were voted on and approved last night by the Republican-majority committee.

The three bills specific to public companies and asset managers are discussed below.

The Guiding Uniform and Responsible Disclosure Requirements and Information Limits (GUARDRAIL) Act (H.R. 4790)

• When adopting issuer disclosure rules, the SEC would be required to expressly provide that issuers only would be required to disclose information in response to the rules that the issuer has determined is material with respect to a voting or investment decision.
• Would require the SEC to publicly list and explain any non-material disclosure requirements.
• A Public Company Advisory Committee would be established.
• The SEC would be required to assess the potential impact of the EU’s Corporate Sustainability Due Diligence Directive and Corporate Sustainability Reporting Directive. (This is perhaps the one area of concern shared by both Republicans and Democrats.)

The Protecting Americans’ Retirement Savings from Politics Act (H.R. 4767)

• Would raises resubmission thresholds for shareholder proposals.
• Would preclude the SEC from adopting its previously proposed amendments to Rule 14a-8 (these would narrow the bases for excluding shareholder proposals based on substantial implementation, duplication and resubmission) or providing no-action relief aligned with that proposal.
• Would allow companies to exclude environmental, social and political proposals from proxy materials, including if they relate to a significant social policy issue.
• Would require proxy advisory firms to (1) be registered with the SEC, (2) manage and publicly disclose conflicts of interest, (3) annually disclose voting recommendations and influencing factors and other specified information relating to voting policies and recommendations, (4) make public their methodology for the formulation of proxy voting policies and voting recommendations and how the methodology ensures voting recommendations are in the best economic interest of shareholders, (5) implement issuer data access and comment procedures in connection with voting recommendations and (6) implement a complaints mechanism.
• Would provide for liability for proxy advisor recommendations in favor of approved proposals that violate state or federal law.
• Would create a presumption that failing to disclose material information (such as a proxy voting advice business’s methodology, sources of information or conflicts of interest) or a material misstatement regarding proxy voting advice would be false or misleading for purposes of the applicable antifraud provisions of the federal securities laws.
• Institutional managers that use proxy advisory firms would among other things be required to report on how votes are reconciled with their fiduciary duties.
• Large asset managers would be required to conduct economic analysis when voting against issuer board recommendations.
• Robovoting would be prohibited (i.e., automatically voting proxy advisory firm recommendations without independent review and analysis).
• Investors would be required to consent to the use of non-pecuniary factors in decision-making.

The Businesses Over Activists Act (H.R. 4655)

• Would prohibit the SEC from requiring companies to include or discuss shareholder proposals in proxy statements.

The fourth bill is the American Financial Institution Regulator Sovereignty and Transparency (American FIRST) Act (H.R. 4823). That bill would apply to federal banking regulators.

As we noted in an earlier post, even if ultimately approved by the House, the bills are unlikely to have the votes to pass in the Senate and they will of course not be signed into law by the President. However, these bills will serve the purpose of further focusing the Republican federal agenda on ESG, which will carry over into future hearings, the next Congress, additional legislative proposals and the agenda of a Republican-led SEC if the Republicans take the White House in 2024. 

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